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Sourcing: African apparel makers must plan for renewed AGOA

Sourcing: African apparel makers must plan for renewed AGOA
Picture credit: Just
Published date:
Tuesday, 24 June 2014
Bill Corcoran

There are growing opportunities in the US for African clothing and textile producers, but a long-term preferential trade agreement is needed for them to develop supply chains that can meet demand, industry experts at the Source Africa trade show have said.

This three-day event held in Cape Town last week focused notably on the African Growth and Opportunity Act (AGOA), which runs from 2000 to 2015, with many attendees seeking to understand how to better exploit the US preferential trade agreement.

While AGOA in its present form ends next year, according to Steve Lamar, executive vice president of the American Apparel & Footwear Association (AAFA), there is a lot of cross-party support in Washington for its renewal.

"The question is not whether it gets renewed, but more how it's renewed," said Lamar, who added that complications that became apparent during the outgoing first phase of the agreement need to be ironed out.

Exports from Africa to the US under AGOA have grown by 500%, from US$8.15bn in 2001 to US$53.8bn in 2011, of which the textile and apparel industry amounted to almost US$1bn.

Despite this growth, the African share of the US market amounts to just 1% - meaning there is ample opportunity for African manufacturers to increase their exports to the US, noted a communiqué from Source Africa organisers.

In addition, rising production costs in China - which produces the majority of the world's apparel and footwear - and its increasing need to meet local demand means that US retailers are beginning to look elsewhere to fill orders, the conference was told.

Len Pesko, a partner at the US-based Modern Pulse Consulting Group, said that footwear sales in the US were worth US$60bn annually, and that last year 82% of that was bought from China, but this is down from 86% a few years ago.

"As you can see businesses in the US are looking for viable alternative sourcing locations," he said during a discussion on how to navigate policies for exporting to the US.

Lamar added that over the past 12 months his members were showing an increased interest in buying from Africa, but they were waiting to see what the US government did with AGOA in its next form before making concrete commitments.

"We need to see renewal happen sooner rather than later; we need predictability because of the type of business we are. Some of our members are holding back orders until they know what is going to happen with AGOA," he said.

Lamar added that the AAFA would like to see AGOA extended for between 15 and 25 years - or even permanently - and for it to cover all countries currently involved for the whole renewal period.

"We are looking for a common platform and regional integration," he maintained, as this would improve delivery time and predictability.

Diversifying into specialty markets

One reason African textile producers have not fully taken advantage of AGOA to date is because they cannot manufacture the volumes of merchandise sought by American retailers, according to Tony Wardle, chief operating officer for South African company Gelvenor Textiles, based in KwaZulu-Natal province.

He maintained the quality of the yarn and technology used by African textile manufacturers to produce their products was very good, yet companies still struggled to make an impact in US markets.

"The AGOA agreement is a gift that Africa is struggling to accept. Most companies are not big enough to supply the demand of the US's mainstream market. Companies need to diversify into the specialty markets - that's where the opportunities are," he said.

This notion of diversifying into specialty markets was also backed by Mercedes Gonzalez, director of US firm Global Purchasing Companies, who maintained that Africa would never be the new China in terms of mirroring its ability to mass produce goods.

"African companies should look to Italy as a template to follow, where they create new styles for niche markets. The consumer is always hungry for something new," she insisted.

Regional supply chains

Gail Strickler, Assistant US Trade Representative for Textiles, could not be drawn on when a new AGOA agreement would become a reality, but she suggested it was only a matter of time, and told delegates that developing regional supply chains in Africa would ensure companies are better able to take advantage of it.

When asked what products African companies should focus upon for US exports, Strickler said that under AGOA the best opportunities for African companies lay where the highest US duty rates were applied on exports from other countries, heightening the AGOA competitive advantage.

"Stay away from fast fashion where trends are changing quickly. Maybe look towards uniforms and baby clothes," she said.

She insisted that to have a truly competitive regional supply chain, companies needed access to water, electricity at a cheap price, technology, raw materials as well as political and economic stability. Companies would only install expensive equipment in African countries where they think that investment is safe, she maintained.

"Hopefully a newer longer-term AGOA will give African countries the type of platform needed to support the building of these supply chains," she said.

Social responsibility

Strickler warned African companies that corporate social responsibility in the industry was also becoming increasingly important to US buyers, especially since the Rana Plaza building collapse in Bangladesh last year.

"Brands are everything to companies in the US and EU. So anything that will tarnish them, they will not touch. Maintaining high standards in relation to workers' rights, and environmentally-friendly work practices are looked at very favourably by buyers.

"If these areas are not right it can be a deal breaker. And buyers often send people out to suppliers to inspect their factories in relation to these issues," she insisted.

Commenting on other trade agreements improving companies' profit margins, Strickler added that the World Trade Organization's new Trade Facilitation Agreement holds potentially significant benefits for African exporters, by abolishing cross-border fees, which can add up.

"We hope that African governments come together to move this agreement forward, as they have been a little hesitant to date," she concluded.

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